FOREX-Euro hurt by report of challenge to ECB plan
* Bundesbank checking legality of ECB bond-buying- report
* Euro may target 200-DMA at $1.2827
* Spain, Greece worries weigh on euro
By Jessica Mortimer
LONDON, Sept 25 (Reuters) - The euro fell on Tuesday on a media report that Bundesbank lawyers were checking the legality of the European Central Bank bond-buying plan, with uncertainty about when Spain would seek aid set to keep it under pressure.
The euro was down 0.15 percent at $1.2915, having earlier dropped to $1.2886 on EBS trading platform. Further losses could see it target the 200-day moving average at $1.2827. It was also lower against the British pound and the Swedish crown, reflecting widespread caution among investors.
German tabloid Bild said the issue of whether the ECB's plans to buy the bonds of indebted countries violates the EU ban on direct financing of state deficits could be referred to the European Court of Justice.
Although some analysts doubted any such challenge would go ahead they said it highlighted the lack of unity among euro zone policymakers.
"This is nothing of the magnitude of the German Constitutional Court decision. But when the euro zone's most significant central bank is being sceptical it doesn't encourage international investors to be holders of euros," said Jeremy Stretch, head of currency strategy at CIBC.
The euro was also weighed down by Spain dragging its feet over requesting an international bailout -- a condition for the ECB to begin buying its bonds. Until Madrid puts in the request, analysts say the euro is likely to weaken.
Last week, the euro hit a 4 1/2-month peak of $1.31729 on optimism resulting from the ECB plan and after the U.S. Federal Reserve announced aggressive quantitative easing.
"In the very short term the 200-day moving average is the obvious trigger point. If that gives way it could fall to $1.2760/70 and then we would be back to the pre-ECB rally levels," CIBC's Stretch said.
The euro was down 0.2 percent at 100.40 yen, having dropped to 100.185 yen, its lowest since Sept. 13.
Worries about whether Greece's can meet its targets under the bailout agreement also weighed on the euro. With the financing gap estimated at double what was initially expected, Greece may seek a rollover of its ECB-held bonds as a possible option, a deputy finance minister said.
This week, Spain is expected to unveil structural reforms and its draft budget for 2013, with investors also awaiting results of stress tests on its banks. A Moody's credit rating review of Spain is also expected, and this could see Spanish debt downgraded to "junk".
"The news out of the euro zone has been negative in the past few days and while it has contributed to a move lower, investors are reluctant to go short against the euro," said Stuart Frost, head of Absolute Returns and Currency at fund managers RWC Partners.
"We are neutral about the euro. It can fall below $1.28 before recovering. But we would sell into any rise towards $1.3050-$1.3100."
Meanwhile, concerns remained about economic fragility in Europe's stronger states and kept alive chances of an interest rate cut by the ECB in the near term.
The dollar was down 0.1 percent at 77.80 yen, moving back towards the Sept. 14 low of 77.46 yen with inflows before the end of the financial half-year helping the Japanese currency. The dollar hit a one-month high of 79.22 yen on Sept. 19 after the Bank of Japan announced further monetary easing.
Japanese Finance Minister Jun Azumi told reporters he stood ready to take firm measures on currencies as long as he was finance minister. He said there would be no vacuum in currency policy due to his pending departure to take a new position in the ruling Democratic Party.
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